Deck 4: Billing Schemes

Question 1

Which of the following computer audit tests can be used to detect billing schemes?

A) Extracting manual checks and summarizing by vendor and issuer
B) Extracting a sample of vendor open invoices for confirmation with the vendor
C) Extracting delivery addresses that do not correspond to company locations
D) All of the above

Answer 1

D

Question 2

____________________ are schemes in which the employee intentionally mishandles payments that are owed to legitimate vendors.

A) Pass-through schemes
B) Pay-and-return schemes
C) Shell company schemes
D) Switch-and-swap schemes

Answer 2

B

Question 3

When a billing scheme is occurring, the company's expenses appear lower than they should, causing the financial statements to show falsely inflated profits.

Answer 3

False

Question 4

Which of the following actions is least likely to help prevent and detect schemes involving fraudulent invoices from non-accomplice vendors?

A) Marking "paid" on every voucher that has been paid
B) Verifying vendor address changes before disbursements are issued
C) Matching all bank statement items to canceled checks
D) Separating the duties of purchasing, authorizing, and distributing payments

Question 5

In a shell company scheme, which of the following methods might a fraudster use to get a phony invoice approved for payment?

A) Collusion
B) A "rubber stamp" supervisor
C) Falsification of purchase orders and receiving reports
D) Any of the above

Question 6

Producing an invoice that looks professional is the most difficult part of a shell company scheme.

Question 7

In the Fraud Tree, all of the following are categories of fraudulent disbursements except:

A) Payroll schemes
B) Cash larceny
C) Check tampering
D) Billing schemes

Question 8

A pass-through scheme is usually undertaken by someone who works in which department?

A) Accounts payable
B) Receiving
C) Purchasing
D) Accounts receivable

Question 9

Categories of billing schemes include which of the following?

A) Shell company schemes
B) Larceny billing schemes
C) Fictitious disbursements schemes
D) All of the above

Question 10

Fictitious entities created for the sole purpose of committing fraud are called:

A) Ghost companies
B) Non-accomplice vendors
C) Shell companies
D) "Rubber stamp" companies

Question 11

Invoices that are submitted by shell companies can be for fictitious goods or services or for items that were actually sold to the victim company.

Question 12

In a ______________ scheme, the perpetrator uses false documentation to cause a payment to be issued for a fraudulent purpose.

A) Purchasing
B) Skimming
C) Larceny
D) Billing

Question 13

Purchasing personal items using an organization's money is what type of scheme?

A) Larceny scheme
B) Billing scheme
C) Pay-and-return scheme
D) Skimming scheme

Question 14

Which of the following controls can be used to prevent or detect personal purchases on company credit cards?

A) Having credit card statements sent directly to someone with signature authority on the account for review and payment
B) Requiring employees to receive store credits rather than cash when returning items they purchased with the company's credit card
C) Monitoring credit card expenses for unexplained increases in purchasing levels
D) All of the above

Question 15

Warning signs of a shell company scheme include which of the following?

A) Invoices lacking details of the items purchased
B) A vendor that is not listed in the phone book
C) An unexpected and significant increase in "consulting expenses"
D) All of the above

Question 16

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, billing schemes were the second most costly type of fraudulent disbursements schemes.

Question 17

Most shell company schemes involve the purchase of goods rather than services.

Question 18

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, the most common fraudulent disbursement schemes were:

A) Billing schemes
B) Check tampering schemes
C) Payroll schemes
D) Register disbursement schemes

Question 19

In order to start up a shell company, the fraudster will most likely need which of the following?

A) Certificate of incorporation
B) Mailing address
C) Bank account
D) All of the above

Question 20

Sally Fuller is a buyer for GWA publishing company. Her job is to purchase supplies and services for the printing of technical manuals. Her brother sets up a printing company, and Sally hires him to print most of these manuals for GWA. However, rather than actually printing the manuals, her brother hires another printer to do the work, then sells the printed manuals to GWA at a 50 percent markup. As a result, his prices are much higher than the other printers who serve GWA. This type of scheme is most likely a:

A) Pay-and-return scheme
B) Pass-through scheme
C) Inventory-markup scheme
D) Non-accomplice vendor scheme

Question 21

In one of the case studies in the textbook, a Southeastern medical college was plagued with fraudulent activity. What started as an investigation into some suspicious expense reimbursement activity eventually led to the discovery of a fictitious company that was set up to fraudulently bill the college for supplies that never existed. Which of the following red flags were found during the investigation?

A) Some vendors didn't have street addresses or telephone numbers.
B) Invoices were received for just under the amount that required two authorized signatures.
C) Some of the checks were cashed at check cashing companies.
D) All of the above

Question 22

Nicolas Hill, CFE, has been hired to look into suspicious activity at Mason & Jefferson, LLC. The company's controller has reason to believe that the company has fallen victim to a shell company scheme. As part of his investigation, Nicolas should do which of the following?

A) Match the vendor master file to the accounts receivable file
B) Review payments with little or no sequence between invoice numbers
C) Extract all employees without a social security number
D) All of the above

Question 23

In one of the case studies in the textbook, a Southeastern medical college was plagued with fraudulent activity. What started as an investigation into some suspicious expense reimbursement activity eventually led to the discovery of a fictitious company that was set up to fraudulently bill the college for supplies that never existed. What was the first sign that there were more problems than the initial expense reimbursement fraud?

A) The auditors found an usually high number of new unapproved vendors.
B) The administrative assistant suddenly left town when requested to be interviewed.
C) The supervisor resigned his position immediately.
D) A tip was received by internal auditors.

Question 24

Eli Adams is an accounts payable clerk for MJF Productions. By forging signatures, he was able to procure a company credit card. He recently bought home stereo equipment and put it on his company credit card. When the credit card statement arrived at MJF, Eli prepared a check to the credit card company and buried the purchase in the monthly expenses of the company's largest cost center, knowing that his manager is generally inattentive when approving payments. What type of fraud is this?

A) Larceny
B) Pass-through scheme
C) Personal purchases scheme
D) Forged maker scheme

Question 25

In one of the case studies in the textbook, a Southeastern medical college was plagued with fraudulent activity. What started as an investigation into some suspicious expense reimbursement activity eventually led to the discovery of a fictitious company that was set up to fraudulently bill the college for supplies that never existed. How was the case resolved?

A) The perpetrator was terminated, and the funds were recovered.
B) The perpetrator was convicted and placed on probation, and partial restitution was ordered.
C) The perpetrator left the state and was caught pulling the same scam at another company.
D) A civil suit was filed and restitution was ordered.

Question 26

Charles Dieter and Joey Davis worked together to steal nearly $50,000 from Valdosta Medical Supply. Charles, an accounts payable clerk, deliberately overpaid a few of the company's vendors. He then called the vendors, explained the "mistake," and asked for the excess to be refunded. Joey, a mailroom employee, intercepted the incoming refund checks and cashed them. The two men split the proceeds. What type of scheme did Charles and Joey commit?

A) Shell company
B) Larceny
C) Pass-through
D) Pay-and-return

Question 27

The internal auditor for the Bremer Group recently ran a computer audit test that showed that Ouetzen Company, one of the company's listed vendors, doesn't have a telephone number or a tax ID number. Of the choices given, what type of fraud does this situation most likely indicate?

A) Larceny scheme
B) Shell company scheme
C) Non-accomplice vendor scheme
D) Personal purchases scheme

Question 28

Abby Watkins works in the accounts payable department for SVX Company. Recently, she set up a payment to Pacific Industries for invoice number 7001a, which is unlike any invoice number she has seen from Pacific in the past. The voucher contains a purchase order that backs up the invoice, but it looks like a photocopy. Additionally, the accounting system shows that invoice number 7001 from Pacific was for a slightly different amount and has already been paid. Pacific Industries is an established vendor with SVX, but the payment address has recently been changed to a P.O. Box in the vendor file. What type of fraud does this situation most likely indicate?

A) Personal purchases scheme
B) Shell company scheme
C) Non-accomplice vendor scheme
D) False purchase requisition scheme

Question 29

In one of the case studies in the textbook, Albert Miano, the facilities supervisor for a popular magazine, submitted phony invoices. When Miano received the checks for the phony invoices, he forged the contractor's signature. He then endorsed the check in his own name. How was the fraud caught?

A) The auditors found a discrepancy in the invoices that were submitted.
B) The new chief of internal audit found it by accident.
C) A vendor received a check by mistake and called the accounts payable department.
D) The external audit found it in an audit sample of canceled checks.

Question 30

In one of the case studies in the textbook, Albert Miano, the facilities supervisor for a popular magazine, submitted phony invoices. When Miano received the checks for the phony invoices, he forged the contractor's signature. He then endorsed the check in his own name. What controls weaknesses did the company have that facilitated Miano's scheme?

A) Employees in the accounts payable department did not follow departmental procedures.
B) Accounts payable never checked signatures on the invoices against the authorized signatures on file.
C) Miano was allowed to pick up the approved invoices from the administrative vice-president's office and deliver them to the accounts payable department.
D) All of the above